Handling Credit Card Debt
HELOC – Home Equity Line of Credit to Handle Credit Card Debt
Some people use a home equity line of credit (HELOC) to pay off their credit card debt. It’s tempting. After all, the interest rates on HELOC are much lower than those for credit card debt, and that means more of your money can be used to pay off the underlying debt.
In combination with a change in money management, it can be a good idea.
There are risks, however. The borrowing terms of the HELOC can involve slowly increasing interest rates. If there is any problem with payment, you are in danger of losing your home. If you don’t change your spending habits, you risk being in a worse situation than you were in before taking out the HELOC.
For a while, I made the interest-only minimum payments. Time passed. The minimum payments began to rise. I was puzzled until I noticed that my interest rate was also increasing. This was alarming, and it prompted me to attack this debt in earnest. In fact, just this month I mailed the final check to pay off my home equity line of credit.
Tapping home equity allowed me to get rid of high-interest credit cards and begin down the path of smart personal finance. It wasn’t an immediate turn-around — I took out a car loan and a couple of personal loans before realizing the error of my ways — but the change did happen, and this second mortgage was an important piece of the puzzle.
Debt Consolidation Loan to Handle Credit Card Debt for Bankrutpcy
Debt Consolidation Loan
People sometimes borrow money when they know they’re headed for bankruptcy.
It can be a strategy, of course. But be careful… Bankruptcy judges are not stupid. If you take a debt like child support, which is not dischargeable in bankruptcy, and put it on a credit card, which is dischargeable in bankruptcy, the judge may not allow it.
In bankruptcy, there is no chance to just ask for debt relief without having the court review all your transactions. If it is found that you tried to cheat a creditor, you may be liable for the debt you tried to evade, and more.
Third, and even worse, if the bankruptcy court found that you were attempting to commit a fraud upon the Court by moving this debt, the Court could deny your discharge altogether.
Finally, you could even be subject to criminal liability if the borrowing is determined to be a fraud, meaning you never intended to pay it back. Fraud is a state crime and bankruptcy fraud is a federal crime.
It’s a bad strategy, we think.
But Judge, I’m “Unsophisticated in Financial Matters”
One fellow did this, and his defense essentially was, he was “not sophisticated.”
Between October 6 and 16, 2008, the Debtor in this bankruptcy appeal obtained cash advances of more than $3,000 from a credit card issued by Discover Bank. On November 25, 2008, an Order of Relief was entered was entered in the bankruptcy court. Under 11 U.S.C. § 523(a)(2)(C)(i)(II), cash advances exceeding $825 obtained within 70 days prior to an order of relief are presumed to be non-dischargeable. The idea is that soon-to-be bankruptcy debtors should not be allowed to run up their debt immediately prior to obtaining relief in bankruptcy. Discover Bank filed an adversary proceeding, and a trial was held in the bankruptcy court. The bankruptcy judge concluded that Anthony, the Debtor, had adequately rebutted the presumption of nondischargeability and had shown that he lacked any intent to defraud Discover Bank. Discover Bank now appeals that determination.
Immediately following the brief trial, Judge McGarity rendered her oral decision. She began by noting that the exceptions to discharge are to be liberally construed in favor of debtors. (Dkt. # 1, Ex. 16 at 25.) She concluded that the Debtor was unsophisticated in financial matters and the record did not support the inference that he ran up his cash advances in anticipation of bankruptcy. Anthony testified that he had seen a financial counselor, which suggested to the bankruptcy judge that the Debtor actually did intend to pay his debts at the time he incurred them. In addition, the judge believed Anthony’s testimony that he essentially had no understanding of bankruptcy until he met with the financial counselor soon before he filed — after he incurred the Discover debts at issue here. Finally, the debts he had incurred were used for paying his bills and to satisfy other debts (two mortgages and a car payment) rather than for any kind of lavish or unusual expenditures. Using credit cards and advances to pay monthly obligations (including other debts) was evidently Anthony’s longstanding practice. Based on these facts, the bankruptcy court concluded that Anthony had rebutted the presumption that the Discover Card debt was non-dischargeable.